Chesapeake Energy 1997 Annual Report Download - page 19

The following table sets forth the Company's estimated proved reserves (net of interests of other working
and royalty interest owners and others entitled to share in production), estimated capital expenditures and the
number of potential net drilling locations required to develop the Company's proved undeveloped reserves at
June 30, 1997:
Estimated
Capital
Expenditures
Percent Required to Number of
of Develop Net Proved
Oil Gas Gas Proved PUD's Undeveloped
Areas (MBbI) (MMcf) Equivalent Reserves ($ in 000's) Locations
Primary Operating Areas
The Company's activities are concentrated in three primary operating areas: (i) the Louisiana Trend,
(ii) the Knox, Sholem Alechem, Golden Trend, and Arkoma Basin areas of Oklahoma, and (iii) the
Navasota River and Independence areas of the downdip Giddings Field in southern Texas.
Louisiana Austin Chalk Trend. The Louisiana Trend is the newest of the Company's three primary
operating areas and is budgeted to represent approximately 50% of the Company's exploration and
development activities in fiscal 1998. In late 1994, Occidental Petroleum Corporation ("Occidental")
completed a horizontal Austin Chalk discovery well in the Masters Creek area of central Louisiana.
Occidental's well was drilled 200 miles east of the Company's activity in the downdip Giddings Field and 60
miles east of the nearest previous commercial multi-well horizontal Austin Chalk production in the
Brookeland Field of southeast Texas.
Following the announcement of Occidental's discovery well, the Company extensively reviewed and
analyzed vertical drilling reports, electric logs, mud logs, seismic data and vertical Austin Chalk production
records to arrive at a geological conclusion that the Austin Chalk could be productive across a large portion of
central and southeastern Louisiana. Accordingly, and in competition with Union Pacific Resources Company,
Sonat, Inc., Occidental, Amoco Production Company, Helmerich & Payne, Inc., Belco Oil & Gas Corpora-
tion and others, Chesapeake invested approximately $179 million from fiscal 1995 through fiscal 1997 to
acquire over one million acres of leasehold in the Louisiana Trend. Beginning in fiscal 1996 and accelerating
substantially by the end of fiscal 1997, Chesapeake expended an additional $163 million to initiate drilling
efforts on 56 gross (34 net) wells to evaluate this leasehold position.
From December 1996 through April 1997, the Company initiated drilling efforts on 15 new operated
wells in the Louisiana Trend. Between April 1997 and July 1997, the Company completed operations on ten
exploratory wells in areas of the Louisiana Trend outside of Masters Creek. Of these wells, one was completed
on April 15, 1997, one on May 3, 1997 and eight were completed after June 1, 1997. Based upon the results
from these wells, which primarily became known to the Company in late June 1997, the Company made the
determination that a significant amount of leasehold previously classified as unevaluated had become
evaluated. This determination, in combination with development in the Masters Creek area, resulted in a
transfer of approximately $91 million of previously unevaluated leasehold costs to the full cost pooi which, and
in conjunction with disappointing drilling results and the related costs thereof and lower oil and gas prices, was
the primary cause of the full cost ceiling writedown.
The Company believes that some portion of the Louisiana Trend outside of the Masters Creek area, and
specifically certain areas of East Baton Rouge and Point Coupee Parishes that are prospective for the
Tuscaloosa formation, may ultimately be successfully exploited. It is the Company's intent to focus its
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Louisiana Trend 7,673 36,418 82,456 20% 54,529 16
Oklahoma 4,483 123,393 150,291 37% 48,741 37
Giddings 1,990 128,992 140,932 35% 33,825 26
Williston Basin 872 551 5,783 2% 2,669 3
Other Areas 2,355 9,412 23,542 6% 7,204 9
Total 17,373 298,766 403,004 100% 146,968 91